IRA Required Minimum Distribution Rule
Individual retirement accounts shelter investment returns from income taxes while the money remains in the account. However, most IRA types cannot shield your money indefinitely because the IRS begins requiring mandatory distributions. The IRA minimum distribution rule applies to all IRAs except for Roth IRAs, which the IRS exempts from this rule.
Other People Are Reading
-
Age for Required Distributions
-
The IRS requires your minimum required distributions to start the year you reach 70 1/2 years old. The distribution for your first year can be taken as late as April 1 of the following year, but all future minimum distributions must be taken by Dec. 31. Unlike 401k plans, IRAs do not allow you to postpone required minimum distributions if you are still employed.
Determining Life Expectancy
-
To determine the life expectancy for the purposes of calculating minimum distributions, the IRS issues life expectancy tables. Most people use the uniform lifetime tables. However, two other tables exist for use if you meet certain criteria. If you inherited the IRA, you must use the Single Life Expectancy table. If your spouse is more than 10 years younger than you, use the Joint Life and Last Survivor table. This table results in higher life expectancies, which allows more money to remain in the account for your spouse after your death.
-
Figuring Your Minimum Distribution
-
You figure your required minimum distribution by dividing your IRA value by your life expectancy. The IRA's value is figured from the end of the previous year and does not change depending on the market value of your IRA during the year. For example, even if your IRA doubles during the year, you would not be required to take out any additional money to satisfy the required minimum distribution rule.
IRS Penalties
-
The IRS imposes a significant 50-percent penalty when you fail to take out the amount you are required to based on your age and your life expectancy. When you file your income taxes, you have to also complete Part VIII of Form 5329 to figure the penalty that you owe. This penalty then adds to your income tax liability when you report it on your Form 1040 tax return.
-
